Nice Balance Sheet, Goldman

The toughest thing about this market is that you never know when something that is widely known will begin to matter. Just when you think an issue is discounted, it rises up to bite you.

In late September, when some deep throat at Bear Stearns leaked a non-story to the NYT that Warren Buffett was going to infuse capital into the firm, we brought up the percentage of pre-tax income the brokers were deriving from Level 3 assets. While Bear Stearns clearly had the highest reliance, Goldman was up there:

9.27.07
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BAC...10%.....LEH....12%

MER...15%....JPM....18%

C........20%....GS......22%

MS......22%....BSC....42%
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Nobody really paid attention until Nouriel Roubini brought up the topic in early November, which led to a shitstorm of controversy as the bears feasted on the news.

Goldman has been involved in countless M&A transactions over the years, and has learned something. How to spin. As we mentioned earlier this week, they continue to lever up their balance sheet during the Great Un-Wind the rest of the Street is experiencing:

Goldman, the biggest and most-profitable securities firm, has a different view. Leverage isn’t as important as looking at the type of assets a company holds, Viniar told analysts last month. Instead, Goldman pays closer attention to capital ratios that assign risk-weightings to assets, said Viniar, 52.

Goldman was not kidding; Level 3 assets rose sequentially 39%, to $96.4 billion

Stripping out stakes owned by others, Goldman’s ``exposure’’ to Level 3 assets was $82.3 billion, or 6.9 percent of the firm’s total assets. That amounts to a 50 percent increase from the previous quarter. Goldman is the only one of the three banks that reports such an adjusted Level 3 figure. Bloomberg

Will Goldman’s strategy pay off? Perhaps, but since when is this a prescription for a premium valuation? Goldman’s stock is getting it relative to its peers, and while that will likely continue, I would not be surprised to see it narrow.

Good Luck to CNBC’s Fast Money traders, who just voted Goldman’s stock their single best stock for the year ahead.

Goldman Level 3 Assets Jump in First Quarter, Exceeding Rivals
Bloomberg

Goldman Zigs While the Street Zags
1440 Wall Street

9.27.07
FAS 157: This is No Rumor
1440 Wall Street
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The content contained in this blog represents the opinions of underthecounter. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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